S&P says El Salvador’s debt exchange constituted default

(Reuters) – Ratings agency S&P on Tuesday said a pension debt exchange by El Salvador in April constituted a default event, but added that the new terms of the exchange also cured the default.

El Salvador conducted a pension debt exchange on April 28, offering private pension funds a mix of new certificates to replace some earlier sovereign financial obligations, according to S&P.

“In general, at such low ratings levels, we consider most exchanges as distressed and tantamount to a default,” S&P said.

However, after the debt exchange, El Salvador will have fiscal relief of around $500 million annually over the next four years, according to S&P.

The ratings agency said it lowered El Salvador’s sovereign credit ratings to selective default from ‘CCC+/C,’ on Tuesday, but will most likely raise it back to ‘CCC+/C,’ on May 10, since the new terms of the debt exchange cured the default.